Will Oberoi Realty really enjoy the festive season?

After a rather grim start of the year with only Rs. 1.7bn worth sales booking in Q1FY22, Oberoi Realty (Market Cap: Rs. 341bn) reported a stellar Q2FY22 performance with sales bookings worth Rs. 8.3bn across 200 units with no new launches in the quarter. This performance can be compared to the Q4FY21 sales bookings worth Rs. 9.7bn which came from sustenance sales excluding the Rs. 9.9bn worth sales that came from Elysian Goregaon alone. Hence, beating the Q4FY21 performance totaling to Rs. 19.6bn still seems like a distance journey.

The company is gearing up for new launches in Thane, Borivali, Mulund and multiple other locations across the city in H2FY22. However, the timing and quantum is still undisclosed. The expected future sales of these are projected at Rs. 35bn and Rs. 45bn in FY22E and FY23-24E respectively on the basis of new launches near completion or completion of the existing inventory. The company expects to win Occupation Certificate (OC) for their 360 West project in Worli in, the next quarter, Q3FY22.

On the annuity business side, the company is pacing steadily towards its target of Rs. 10bn from exit rental income and anticipation of commencement of Commerz III office and Borivali mall by March’24. Although, FY22 maybe serve as a speed breaker in this race to reach the end goal with Work-from-Home still in play and repeated shutdowns for malls. While the expected development properties sales value is projected at Rs. 53.28bn in FY23E and Rs. 48.39bn in FY24E.

In the list of future plans for the company, Oberoi Realty prepping to step into the society redevelopment projects in Mumbai city. The company is eyeing projects that would generate a revenue worth Rs. 5-7bn each and is already in talks with few key persons for the initiative to materialize. The company is working on an agreement with Shivshashi Society in Worli and make it their first project in this market.

On the stock front, broking houses have downgraded stock recommendation to “HOLD” from “BUY” as the stock price has zoomed 43% in the past 3 months. The target price has been revised from Rs. 938/share from Rs. 792/share on the assumption of a robust growth in sales and increasing premiums on NAV (20% vs 10%) on growth opportunities basis. The shareholding pattern of the promoters and institutional investors remain pretty much the same while FIs/Banks and MFs marginally increase their stake and FIIs and others marginally decrease their stake in the stock.

On the financial front for FY22E, the net sales are expected to report ~13% growth, PAT is expected to increase from 7.2% to ~38.6% and EBITDA is expected to increase from -4.5% to ~18.0%. However, the expected RoE and RoCE show a negative growth. Expected RoE declining to 6.9% from 8.2% and expected RoCE declining from 11.8% to ~11.6%. Total assets and total liabilities are expected to increase by ~12%.

The risks associated with the company is higher than expected share price on the upside and declining demand for the residential projects on the downside.